Research and Development Tax Credits (R&D tax credits)
We have helped several start-up & SME technology companies in Cambridge reduce their tax bills or receive a healthy cheque from HMRC in respect of R&D tax credits. Our hands-on experience in preparing clients and R&D tax credit relief claims among our clients has successfully resulted in corporation tax bill reductions / six figure refund cheques.
We will identify the necessary information and data to efficiently calculate the amount due and present the claim to the taxman (HMRC). Try us and contact us! We will prepare your research and development (R&D tax) credit calculations and improve your cash flow as a result.
Research and Development (R&D) credits are a Corporation Tax relief that will reduce your company's tax bill. Alternatively, if your company or organisation is small or medium-sized, you may be able to choose to receive a tax credit instead, by way of a cash sum paid by HM Revenue & Customs (HMRC). This is very useful to technology start-ups and SMEs, especially in the innovative start-up scene of Cambridge and London.
Your company can only claim R&D tax credits if it's liable for Corporation Tax.
How much R&D Relief can be claimed by a start-up or SME?
Amount of expenditure
Tax relief is only available if your company spends at a rate of at least £10,000 a year on qualifying R&D costs in an accounting period. There's an upper limit of €7.5 million on the total amount of aid you can receive on any one R&D project.
Rate of tax relief or credit
The tax relief on allowable R&D costs incurred after 1 August 2008 is 175 per cent - that is, for each £100 of qualifying costs, your company or organisation could have its Corporation Tax bill reduced by an additional £75 on top of the £100 spent.
If instead there is an allowable trading loss for the period, this can be increased by 75 per cent of the qualifying R&D costs - so that's £75 for each £100 spent. This loss can be carried forward in the normal way, but only if you choose not to convert it to tax credits.
Example - R&D Relief for expenditure of £20,000 where the company has made a profit of £20,000
| R&D expenditure |
£20,000 |
| R&D Relief |
£20,000 × 75% = £15,000 |
| Normal taxable profit |
£20,000 |
| Taxable profit less R&D Relief |
£20,000 ? £15,000 = £5,000 |
| Revised taxable profit |
£5,000 |
Example – R&D Relief for expenditure of £20,000 where the company has made a loss of £10,000
| R&D expenditure |
£20,000 |
| R&D enhancement |
£20,000 × 75% = £15,000 |
| Normal trading loss |
£10,000 |
| Trading loss less R&D Relief |
£10,000 ? £15,000 = £25,000 |
| Loss available to carry forward or back for Corporation Tax purposes |
£25,000 |
If your company makes a loss, you can choose to receive your tax relief by way of tax credits - a cash sum paid to you by HMRC - if your company or organisation has PAYE and National Insurance contributions (NIC) liabilities for that period. The amount of tax credit you can receive is limited to the total of PAYE and NIC liabilities for that period. But it includes liabilities for all directly employed staff - not simply those working on the R&D project.
Example - Converting R&D Relief on expenditure of £20,000 to a tax credit payment
R&D expenditure
|
£20,000 |
| R&D enhancement |
£20,000 × 75% = £15,000 |
| Normal taxable profit |
£5,000 |
| Trading loss (after R&D Relief) |
£10,000 |
| R&D expenditure qualifying for conversion to credits |
£10,000 |
| Potential tax credit |
£10,000 × 14% = £1,400 |
| PAYE and NICs liabilities (say) |
£5,000 |
| Payable tax credit |
£1,400 |
| Losses available to carry forward or back |
Nil |
Click here for more information about R&D tax credits |
Taxation 
